General Motors (GM) has still not made an official statement reacting to reports that it has suspended its Egypt operations due to a persistent shortage of foreign currency, but Central Bank Governor Tarek Amer has weighed in on the subject.
In a statement to Youm7 newspaper, Amer noted that in recent years Egypt has been a successful and profitable market for the US-based automaker, stating that GM sold around LE8.8 billion worth of vehicles in Egypt in 2015, compared to LE6 billion in 2014 and LE4.5 billion in 2014. GM has borrowed LE1.6 billion from Egyptian banks — some eight times the value of the company’s paid-in capital of LE200 million — while only getting around US$60 million in financing from its parent company, he added.
Meanwhile, South Korean electronics manufacturer LG has denounced media reports that it, too, is shutting down its Egyptian facilities. Rumors that the company plans to reduce or suspend operations in Egypt are “unfounded and completely devoid of truth” the company said in a Wednesday statement.
LG said it is facing problems securing foreign currency to pay for imports, but that the company is confident that, “thanks to the long and positive relationship with the Egyptian government” and its cooperation with Egyptian banks, its workflow will continue smoothly in the coming period.
Reports that the local operations of major international companies are being affected is just the latest in a series of signs that the shortage of foreign currency in Egypt is taking a serious toll on the economy.
Egypt appears to be struggling to maintain its foreign reserves, which the Central Bank of Egypt reports have hovered at around US$16.4 billion since September. At the same time, it has resisted devaluing the pound, instead holding the official dollar exchange rate of LE7.73 since November.
The Central Bank makes dollars available at the official rate through currency auctions, but the supply is far below the demand. In an attempt to block importers from resorting to the black market, the bank put a cap on foreign currency cash deposits in February 2015, which was recently partially lifted for importers of essential goods like basic food commodities, industrial equipment and medicines.
Importers of commodities deemed non-essential still face a monthly deposit cap of $50,000 along with a host of other regulations that appear to be aimed at discouraging the import of consumer goods, including a recent increase in customs tariffs. In an October statement, President Abdel-Fattah Sisi called for a “rationalization” of imports goods in order to save dollars and boost local industry.
The government has also been dogged by reports that it, too, is having trouble paying its bills. Although officials have denied facing liquidity problems, state-owned commodity purchasers have faced complaints from both oil and wheat traders.